Strong cash flow and efficiency gains ends a 2023 heavily impacted by market headwind
Key highlights
- Weak volumes in North America and negative price and mix impact in both regions
- Sequentially lower input costs, mainly related to pulpwood in Europe
- Another strong delivery of our efficiency enhancement program
- Excellent cash delivery through working capital focus
- Negative profit impact from revaluation of biological assets in the associated company BSÖ
- The Board of Directors proposes a dividend of SEK 2.00 per share (7.50)
Quarterly data Q4
- Net sales decreased by 20% to SEK 9,566 million (11,971)
- Adjusted EBITDA* SEK 774 million (2,092)
- Adjusted EBITDA margin 8% (17)
- Operating loss SEK 191 million (profit: 1,353) including items affecting comparability of SEK -244 million (-52)
- Net loss SEK 330 million (profit: 940)
- Earnings per share SEK -1.33 (3.79)
Outlook for Q1
- Market conditions expected to slightly improve from weak levels
- Improved price positions in liquid packaging board more than offset price pressure in other categories
- Increased total input costs
- Positive impact from efficiency enhancement program
Comments by the CEO
2023 has been an extremely challenging year. Early in the year, we faced unusually high inventory levels throughout the value chain. The whole industry has needed to be patient and wait for the destocking to phase out. In that sense, the fourth quarter was no exception, and broadly in line with our expectations. Sales volumes came in somewhat softer due to customers protecting their working capital before year-end, and logistical challenges. The good news is, going into 2024, we see clear indications that customers’ inventories are returning to normalized levels.
The organic and currency-neutral net sales in the fourth quarter declined by 21% compared to the same period last year. Our input costs continued to decrease sequentially, mainly attributed to lower wood costs in Europe. However, low sales volumes in North America as well as deteriorated prices and unfavorable category mix in both regions led to an adjusted EBITDA margin of 8%, a performance we are not satisfied with.
We have maintained a strong focus on items we can influence in an unfavorable market environment. In this context, I’m proud of the results we have delivered throughout 2023. Our three-year efficiency enhancement program has excellent momentum, and we overdelivered on the 2023 target. I am also pleased with the outstanding cash flow conversion for the year of 99%, mainly driven by successful reduction of inventory levels. This enabled us to finish the year with a continued strong balance sheet. The Board proposes a dividend for 2023 of SEK 2.00 per share, 65% of the adjusted net profit.
For the first quarter of 2024, market conditions are expected to slightly improve from weak levels for most of our product categories. We will stay proactive in terms of price management as total input costs are expected to increase. For liquid packaging board, we have secured improved price positions for significant volumes, which will more than offset price pressure in other categories.
Going into 2024, we have three main priorities: 1) Proceed with the preparations for our strategic investment projects 2) Implement a selective strategy upgrade for Region Europe and 3) Continue to deliver EBITDA uplifts from our efficiency enhancement program.
We remain convinced about the opportunities to convert some of our paper assets to board production in the US, but the transformation must deliver strong shareholder value. We continue to tune the project scope and phasing in close dialogues with suppliers. Meanwhile, we are strengthening our market position for paperboard in North America through export from Europe. Our plans to start BCTMP (bleached chemi-thermomechanical pulp) production together with Viken Skog in Norway is also proceeding. We have completed the feasibility study and submitted the application for the necessary environmental permit.
We must be agile as Region Europe is facing a new reality of structurally higher input prices. Our clear aim is to improve profitability and maintain positive cash generation across all production units. We are determined to make bold moves to secure cost competitive fiber sourcing by entering new partnerships, applying technical improvements to reduce the consumption, and increasing our field wood purchasing. We also see substantial efficiency potential in the way we work and operate across our high-quality mills.
We have several sizable building blocks for 2024 within our efficiency enhancement program. For example, we will rearrange and optimize our outbound logistics structure in Europe. The process to reduce our workforce by 350 positions is ongoing and will provide structural savings already this year. The efficiency enhancement program is in total expected to deliver an additional EBITDA uplift of SEK 700 million by the end of 2024.
For 2024, we remain optimistic that volumes will start to recover. Customer destocking is mainly over, which should give us a clear boost. However, consumption in certain categories will likely be negatively impacted by increased geopolitical and macroeconomic uncertainties. We remain focused on the items and areas we can control and will execute plans to realize efficiencies. We are also excited about the strategic investment opportunities that will be decisive for Billerud’s future direction.
Ivar Vatne
President and CEO
Source: Billerud
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